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The ICC Banking Commission addresses the subject of “Modifications and Exclusions under Documentary Credits subject to UCP 600” in Technical Advisory Briefing No. 5 (TAB-5), the latest of its ongoing educational series, dated 7 December 2022.
Although issuers of documentary credits subject to UCP600 are permitted to modify or exclude segments of the rules, the briefing posits that this practice “often causes unexpected and, in many cases, unnecessary problems.”
TAB-5 reminds that the primary purpose of the UCP600 rules is to augment certain properties (transparency, clarity, uniformity, specificity) and diminish others (ambiguity, misunderstanding) in the documentary credit process. Any issuer electing to modify or exclude any portion(s) of a UCP600 rule should preserve these aims.
By means of ICC Opinions and ISBP745, the ICC Banking Commission has addressed questions and provided interpretations regarding approaches to modify or exclude an article or sub-article of UCP600. Some are highlighted in the briefing and include ICC Opinion TA638rev (2007, months after UCP entered into force), ICC Opinion TA704rev (2009) and ISBP745 Paragraph A19 (“Expressions not defined in UCP600”).
Any decision to modify or exclude some portion of the rules, in fact, departs from the “Uniform Customs & Practice” established for documentary credit use. If parties intend to make a credit subject to UCP, they then need to carefully evaluate why some alteration of those rules is desirable and prudent. The briefing then gives a series of points that parties should consider.
The briefing underscored the fact that excluding some part of UCP frequently means replacing it with something else. “Exclusion it is often not as simple as merely making a statement in the documentary credit that article X or sub-article Y is deleted or is not to apply. Very often there is a need for a new term or condition to be expressly inserted into the documentary credit to cover the void that the exclusion leaves.”
Overall, education is key and TAB-5 concludes by emphasizing the importance of enhanced understanding of documentary credit processes, the UCP600 rules, the ISBP745 practices and broader dissemination of informational recourses.
TAB-5 and previously issued technical advisory briefings are freely available at the ICC Digital Library.
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